Answer these questions:

Ch 393 apm PROBLEMS PROBLEM 1: TRUE OR FALSE ' 1. PFRS 15 does not address the accounting for \"Venue Prom franchise agreements. _ 2. Under the current PFRSs, a franchisor recognizes the initial franchise fee as revenue in full at the commencement of the tram chisee's business operations. 3. If a promise to grant a license is not distinct, the entity Shall apply the specific principles to determine whether the license provides the customer a right to access or a right to use the entity's intellectual property. 4. If the intellectual property to which the customer has rights does not change over the license period, the nature of the entity's promise to transfer the license is most likely a \"right to access." 5. According to PFRS 15, if, at contract inception, the entity determines that the collectability of the consideration in a franchise agreement is significantly uncertain; the entity may recognize revenue from the contract using either the installment sales method or the cost recovery method. PROBLEM 2: MULTIPLE CHOICE - THEORY 1. A promise to grant a license is most likely to be distinct if . a. the license is integral to the functionality of a \"11311319 good. . b. the customer can benefit from the license only in conjunction with a related service. Y~ '3' the Performance obligation is satisfied over time- d. the customer can benefit from the license on its 0""11 the license is separately identiable. 2. If the promise to transfer a license is distinct {2153 ' t a. the entity shall treat all the promises in the contrac ' Single Performance obligation. ' ring for Franchise Operations - Franchisor 399 ; MK . the entity. shall determine whether the performance obligation IS sanshed over time or at a point in time using the general principles' of PFRS 15. the entity shall determine the nature of the grant of license as either "right to access\" or \"right to use.\" d. bandc Co A An emit-y enters into a contract with a customer to license (for . a period of three years) intellectual property related to the design and production processes for a good. The contract also Species that the customer will obtain any updates to that intellectual property for new designs or production processes that may be developed by the entity. The updates are essential to the customer's ability to use the license because the customer Operates in an industry in which technologies change rapidly. The entity does not sell the updates separately and the customer does not have the option to purchase the license without the updates. Which of the following statements is incorrect? a. The promises to grant the license and to provide the updates are two separate performance obligations. b. The license and the updates are accounted for together as a single performance obligation. C- The general principles are applied to determine how the performance obligation is satisfied. d- The single performance obligation is satised over time. i \"E 15-\":33-280 - Adapted) I . 4' which of the following would most likely not be considered as a seParate performance obligation in relation to a franchise agreement? a. grant of license to use the franchiso b' 1Transfer of equipment to be USE buSiness r's trade name d in the franchisee's tivities to support the 400 Chapter 8 5. On Nov. 1, 20x1, an entity enters into a franchise agreement to grant a franchisee the right to operate a shop using the entity's trademark for three years. As consideration, the franchiser Pays an upfront fee plus sales-based royalty. The entity customarily undertakes activities that aim to further improve the trademark. Although those activities do not result in the direct transfer of a good or a service to the franchisee, it is expected that the franchisee will benefit from those activities. All the necessary preparations were completed and the franchisee starts operating the shop on Jan. 31, 20x2. How would the entity recognize revenue from the initial franchise? a. in full on November 1, 20x1 b. in full on January 31, 20x2 c. deferred and amortized from Nov. 1, 20x1 to Jan. 31, 20x2 d. deferred and amortized over the license period starting Jan. 31, 20x2 6. On November 1, 20x1, FALLACIOUS Co. obtained franchise rights from MISLEADING Co. The initial franchise fee included consideration for equipment to be delivered to FALLACIOUS. The separate consideration reflects the stand- alone selling price of the equipment. All the necessary preparations were completed and FALLACIOUS Co. started operations on January 31, 20x2. The equipment was delivered to FALLACIOUS on December 1, 20x1. How would MISLEADING Co. recognize revenue from the supply of the equipment? a. in full on November 1, 20x1 b. in full on December 1, 20x1 c. in full on January 31, 20x2 d. deferred and amortized over the franchise term starting January 31, 20x2Accounting for Franchise Operations - Franchisor 401 7. According to PFRS 15, revenue is measured a. at the fair value of the consideration received or receivable in the contract. at the amount of transaction price allocated to the performance obligation that is satisfied. at the stand-alone selling price of the promised good or service in the contract. d. any of these s. Contract costs recognized as asset are a. amortized in a manner that is consistent with the recognition of the related revenue. b. deferred and amortized using the straight-line method. c. depreciated over the estimated useful life of the asset. d. expensed immediately when incurred. 9. If at contract inception the collectability of the promised consideration is significantly uncertain, a. no revenue is recognized from the contract, and any amount received is recognized as liability. b. revenue from the contract is recognized using the "installment method." c. the accrual method is disregarded and revenue is recognized only when cash collections exceed the costs incurred. d. any of these as a matter of accounting policy choice 10. If in a subsequent period the collectability of the consideration in a franchise contract becomes doubtful but not significantly uncertain, the entity shall a. discontinue recognizing further revenue. b. assess any existing receivable or contract asset from the franchise contract for impairment. ". shift to the installment method or the cost recovery method of revenue recognition